I’ve been learning more and more about how venture capitalists and investors operate in the past year or so (after raising our first venture round). They are an interesting bunch of animals.

One of the most interesting traits I’ve seen is their ability to look into the future. Basically, the best VCs I’ve met are a) good human beings, and b) can see into the fabric of tomorrow.

Now, none of them will tell you that they can actually predict the future – and I am not saying that either. But all of them are keen on seeing what’s happening today and having a broad, general idea about how it’ll impact the world in 5-10 years.

In the 1990s, the mobile phone industry exploded into the scene. They demanded ever smaller components, ever lighter, and ever power thrifty. Merge this with low cost manufacturing of electronics from Asia… Bam! It drove down the size and price of small devices practically overnight.

At the same time, wireless communication in the early 2000’s benefited from this outsourcing movement, and while most of us saw Wi-Fi and bluetooth as a way to get ourselves onto the Internet, other smart people started using this connectivity to connect machines to machines that didn’t provide a Web interface to humans.

In the late 2000’s, we saw another advancement: the cost of sensors declined and became smaller as they became added to phones and other mobile devices.

That means now, a company of 5 people in the US could design (and have someone in China manufacture) a small, low-cost, low-power, sensor that could connect to the Internet.

And then companies like Fitbit were born, changing the landscape of what we know about ourselves.

(I keep using the word “cheap” because it’s very important when it comes to turning tech into a business. It was possible for people to design a Fitbit 10 years ago, but it would have prohibitively expensive, and hard to use, virtually killing adoption. Cheapness is a virtue, and that’s for another post.)

These three factors…

Outsourced component manufacturing

Consumer-grade, always-on, wireless devices connectivity

Low-cost, low-power, sensors
Will continue to drive huge amount of innovation in the next 10 years.

If you want to play armchair VC, start thinking about how these 3 factors will impact us 5. 10 years from now as costs keep dropping, speeds keep increasing, and power consumption becomes more efficient.

What new places will we see these devices? (New markets) What happens to people’s behavior? (Consumption and cultural change) What happens if devices are so cheap and small, they become deposable? (Environmental impact, and upgrade patterns) What happens when we have too much data from too many devices? (Aggregation, standards, analytics)

In fact, looking at the past 10 years, we can even predict how fast, and how little power future devices will consume. Moore’s Law and others like it can literally tell you how much you should be paying for electronic components 10 years from now.